WEEKLY STOCK MARKET DIGEST: SLOWLY RAISE HEDGES INTO THE STRENGTH – 32% GAIN ON INVERSE BOND ETF

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By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

 

SLOWLY RAISE HEDGES INTO THE STRENGTH – 32% GAIN ON INVERSE BOND ETF

To gain an edge, this is what you need to know today.

Slowly Raise Hedges

Please click here for a chart of inverse bond ETF TBT.

Note the following:

  • The chart shows that there is a 32% swing from the low to the recent high in about four months.   has been in ZYX Buy and ZYX Allocation.
  •  is an inverse bond ETF. It goes up when interest rates go higher.
  • The chart shows the power of hedges when done right.
  • Hedges allow you to protect good long term positions.
  • The time to buy hedges is when they are cheap.
  • The time to take profits on hedges is when they become expensive. For example,  is now expensive. If you are not already in TBT, consider not rushing to buy it now. It is better to patiently wait for a pull back.
  • Premiums on put and call options have come down. If the market keeps on rising, put prices will go even lower.
  • The call is to slowly  to hedges as the market goes higher and put prices go lower.
  • For those who are sophisticated, the best way to hedge right now is to build a zero cost collar ladder.
  • Short to medium term hedges are being increased. Please see the section “Protection Bands And What To Do Now” below.
  • Using options as hedges takes knowledge. For those who want to keep it simple, simply use inverse ETFs. For example, ZYX Global Model Portfolio names three inverse ETFs that are suitable for hedges.
  • As a caution, if you do not implement hedges correctly, you can lose money on them.
  • How the hedges are implemented is highly dependent on your portfolio and your objectives. Therefore, it is not practical to give more guidance than we already give.
  • The simplest way, although not the best, is to simply hold more cash or short term Treasury bills.
  • A short squeeze was developing in the early trade leading to significant buying in stocks. However, as of this writing, smart money has been selling the strength. Short squeezes are common on Fridays. 

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 stocks in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is being sold.  The trigger seems to be Peter Thiel calling Warren Buffett “bitcoins’ enemy No. 1” and a “sociopathic grandpa.”

Markets

Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1934, silver futures are at $24.55, and oil futures are $97.35.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are up 21 points.

Protection Bands And What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

 

UNPRECEDENTED QUANTITATIVE TIGHTENING AHEAD – WILL BOOM TURN TO BUST?

To gain an edge, this is what you need to know today.

 Unprecedented QT

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • Please start out by reading yesterday’s Morning Capsule.
  • Among major ETFs,  is significantly more sensitive to QT compared to  or SPY.
  • The chart shows that  was not able to reach the resistance zone during the rally. This is a negative.
  • The chart shows that  has pulled back into the support zone.
  • Investors need to watch if  bounces from here or breaks below the lower band of the support zone shown on the chart.
  • The wealth generated by the stock market and the real estate boom since the financial crash of 2008, is in large part built on quantitative easing.  
  • As the Fed starts quantitative tightening, here is the all important question: Will the boom turn into a bust?
  • In theory, the answer is that about half of the gains from the last 13 years should evaporate.  What happens in markets is often different from the theory.
  • The last time the Fed tried to  reduce  its balance sheet, the stock market threw a tantrum. The Fed did not have the backbone to do the right thing for the long term good of the country in the face of a falling stock market. The Fed quickly backed off. At that time, inflation was low, and thus the Fed had room to back off.
  • This time inflation is high, giving the Fed no room to back off.
  • The bullish scenario is that inflation eases and the Fed does not carry out its aggressive quantitative tightening. If this scenario comes true, there is a high probability of S&P 500 reaching 6000 next year.
  • The bearish scenario is that quantitative tightening along with rate increases drives the economy into a recession and inflation still stays above 4 – 5%. Keep in mind that the Fed’s target for inflation is 2%. In this scenario, there is a high probability of S&P 500 falling to 3000.
  • The Fed is aiming for the first scenario.
  • The Fed has set up a permanent facility to allow investors to swap Treasuries for cash. In theory, this should alleviate the liquidity issues that spiked short term rates in 2019.
  • The whole system ranging from what politicians do to blind money to Wall Street is geared to drive the stock market higher. This is an important reason to not become too bearish.
  • The other important reason to not become too bearish is TINA (there is no alternative). As interest rates rise, bonds will provide competition to stocks. However, if inflation stays high, the only real option investors will have to counter inflation will be to buy stocks and real estate.
  • The sum total of the foregoing as an actionable item is captured in the section “Protection Bands And What To Do Now” below.
See also  FED AHEAD – DO NOT IGNORE THE HIGHLY FLAWED MOMO NARRATIVE FOR A RIP-ROARING RALLY

Jobless Claims

Initial claims came at 166K vs. 200K consensus. This indicates that the already strong labor demand is getting stronger.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

One of the bullish arguments for bitcoin has been that it is a protection against wrong headed Fed policies. Now that the Fed is beginning to pursue sensible policies, expect bitcoin gurus to come up with a new bullish narrative.

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 but may quickly flip based on speeches by several Fed officials today. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1929, silver futures are at $24.43, and oil futures are $97.31.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are down 121 points.

 

RAISE CASH – QUANTITATIVE TIGHTENING MAY BE FASTER

To gain an edge, this is what you need to know today.

Raise Cash

Please click here for a chart of the Fed balance sheet.

Note the following:

  • The chart shows the Fed balance sheet dramatically increasing to about $9 trillion. In plain English, the Fed printed a lot of money out of thin air.
  • Quantitative easing (QE) is the fancy phrase to describe the Fed’s money printing. Quantitative tightening (QT) is a fancy phrase to describe the Fed reducing its balance sheet.
  • For the size of the U.S. economy, the Fed balance sheet is simply too large.
  • The Fed’s balance sheet is, in part, responsible for the high inflation now.
  • The Fed has no choice but to  reduce  its balance sheet.
  • The pace of QT may be faster than the market consensus.
    • The market consensus is about $70B per month.
    • In our analysis reading the tea leaves from Brainard’s speech, the QT may be $90B per month.  
  • FOMC minutes will be released at 2pm ET. We will be looking for confirmation of our analysis.
  • In theory, it is better to wait until we are able to carefully study the Fed minutes to make the call of raising cash. However in practice, to give subscribers more time, the call is being made ahead of the event.
    • Cash is being raised by 5%.
    • Please see the section titled “Protection Bands And What To Do Now” below for more details.
    • Consider doing only a part of the cash raise now based on personal preference and waiting for our analysis of the Fed minutes for the rest.
  • On March 11, the call was to deploy cash and  reduce  hedges. Since then, NASDAQ 100 rose 13.73%.  
    • On March 30, the call was given to raise hedges. So far, March 30 is the top of this move, and the call to raise hedges has proven spot on.  
  • The guidance provided in the Afternoon Capsule under the section titled “Buy Zones And Buy Now Rates” is likely going to change. 
See also  SMART MONEY SELLS THE STRENGTH IN STOCKS – POWELL RESOLUTE, MASSIVE LOSSES IN OIL

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 stocks in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

The Bitcoin 2022 Conference is starting in Miami. Bitcoin bulls are hopeful that bullishness created by the conference will push bitcoin above its 200-day moving average of $48,300.

Keep in mind that lately bitcoin moves with speculative stocks. Speculative stocks are being sold this morning.

Markets

Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1929, silver futures are at $24.44, and oil futures are $103.13.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are down 223 points.

 

MUSK’S TWITTER MOVE CREATES A POSITIVE SENTIMENT FOR THE STOCK MARKET

To gain an edge, this is what you need to know today.

Sentiment

Please click here for a chart of Twitter (TWTR).

Note the following:

  • The Morning Capsule is about the big picture and not about an individual stock.
  • The chart of Twitter is being highlighted because Musk’s Twitter move has created a significant positive sentiment for tech stocks.
  • The chart shows a gap up in Twitter’s stock when Musk announced that he had built over 9% stake in Twitter.
  • The chart shows a second leg up on the news that Elon Musk is joining Twitter’s board.
  • Of significant interest is that yesterday’s SEC filing showed that Musk’s stake in Twitter was passive. Passive means it is held for investment without any active involvement in or regarding the company by the investor. A day later, Musk becomes the most influential director of Twitter.  This shows that investors should never take news at face value and should maintain access to independent resources without an agenda to be able to interpret important news that matters in a timely manner.
  • Yesterday, we wrote in ZYX Buy:

Elon Musk has taken a stake in TWTR.  At this time, his stake is marked passive.  In our analysis, there is high probability that the stake will become active at some point.

  • Under the agreement between Twitter and Musk, Musk will not become an owner of more than 14.9% of the common stock. In our analysis, if Musk does not get his way, it is only a matter of time before Musk buys more Twitter stock. Going forward in many ways, investors should think about the news regarding Twitter the same way they thought about the news about Tesla (TSLA) over the last few years.  Every time there was positive news about Tesla, it created more positive sentiment about tech stocks and tech stocks were bought wholesale.
  • Of special interest is that the Trump SPAC (DWAC) fell yesterday on the news of Musk buying a stake in Twitter.   stock is falling further on the news that Musk has become a Twitter director. Trump has launched a new social media platform Truth Social. As a reference, Trump has been banned from Twitter. There is speculation that Musk will push for Twitter to allow Trump back.
  • As a full disclosure, ZYX Buy has a core position in Twitter from $15.37. Twitter is trading at $54.70 as of this writing. Further as an important disclosure, ZYX Buy also has a new trade around position in Twitter, and the position is nicely profitable.
  • We shared with you in yesterday’s Afternoon Capsule that the Twitter news had generated strong buying in  stocks.
  • New quarter blind money buying is now done. Without the Twitter news, the set up was for a substantial drop in the stock market today. However, the positive sentiment created by the Twitter news is cushioning the pull back in the early trade.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.

See also  MOMO BUYING ON POTENTIAL DOUBLE BOTTOM IN THE STOCK MARKET

For longer-term, please see oil ratings.

Bitcoin

There is positive sentiment in bitcoin on the news that  bought bitcoins throughout the quarter.

Markets

Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1938, silver futures are at $24.89, and oil futures are $104.91.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are down 79 points.

 

CEO OF THE LARGEST BANK PREPARES FOR DRAMATIC UPHEAVALS

To gain an edge, this is what you need to know today.

Dramatic Upheavals

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The chart shows that in spite of blind money buying and momo buying, the stock market rally is stalled.
  • RSI on the chart shows that the stock market is losing its internal momentum to the upside.
  • The market needs a trigger to gain upside momentum again.
  • Jamie Dimon, CEO of the nation’s largest bank JPM, is preparing for dramatic upheavals. Here are the key points from his annual letter:
    • Inflation, the Fed policy, and the Ukraine war could lead to unpredictable consequences.
    • The consumer is flush with cash with more than $2 trillion in excess savings.
    • Stimulus lasted too long.
    • Interest rate rise by the Fed is needed to control inflation.
    • Interest rates may need to rise significantly higher than the market expects.
    • The war in Ukraine will slow the world economy.
    • Risks ahead have dramatically increased.
  •  Jamie Dimon and  JPMorgan are part of smart money.  For many investors, it is a learning moment.  We encourage you to read Dimon’s long letter.  Here is the link.  Investors should note the following:
    • Dimon has an opinion but is not locked in his opinion.
    • He is looking at various scenarios.
    • Even though he is bullish, he is seriously looking at bearish arguments.
    • He is doing a 360-degree analysis.
    • Dimon understands that the future is uncertain and is preparing for the uncertainty.
  • Contrast Dimon’s letter with research from momo gurus.  Momo gurus get locked in a one-sided opinion.  They advance the arguments that support their opinion and ignore the arguments that go against their opinion.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

In India, traffic to bitcoin exchanges has dropped by over 50% due to a new tax regime.

Markets

Our very, very short-term early stock market indicator is 🔒 and can easily swing either way.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1937, silver futures are at $24.86, and oil futures are at $102.54.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

futures are down 21 points.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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